Reference no: EM132855998
ACCT6005 Company Accounting - Laureate International Universities
Assessment - Case Study
Learning outcome 1: Prepare consolidated financial statements and related accounting entries for incorporated entities.
Learning outcome 2: Generate and communicate strategic recommendations in various inter-entity relationship scenarios with reference to relevant accounting standards.
Case Scenario
PART A
Fox Ltd is a majority shareholder of Rabbit Ltd.
Fox Ltd is a company that produces films and television shows. It also owns amedia streaming business that broadcastsFox Ltd.'s movies and television shows.
On 31 December 2020, Fox Ltd transferred its entiremedia streaming assets and share capital to Rabbit Ltd.As part of this transaction, Rabbit Ltd acquired $100 million in debt. Rabbit Ltd also acquired an additional media streaming business, incurring $1million of debt. Fox Ltd. did not guarantee this debt.
Several months after the transfer of assets and share capital, Rabbit Ltd issued ordinary shares in an initial public offering, raising nearly $1 billion in cash and reducing Fox Ltd.'s ownership interest in Rabbit Ltd to 41%. The remaining 59% of Rabbit Ltd.'s voting interest is widely held.
Rabbit Ltd has entered into broadcast contracts with Fox Ltd, pursuant to which Rabbit Ltd must purchase 90% of their television shows from Fox Ltd. Fox Ltd. determines all payment terms and conditions. The agreement providesRabbit Ltd all exclusive rights to broadcast Fox Ltd.'s movies and television shows in specific geographic areas. This covers approximately 45% of the country's population. Fox Ltd provides promotional and marketing services for all its movies and television shows on behalf of Rabbit Ltd.
Under this contract, Rabbit Ltd has limited rights to engage in businesses other than the sale of Fox Ltd.'s movies and television shows. In its most recent financial year, 90% of Rabbit Ltd.'s sales were Fox Ltd movies and television shows.
Additional information: Rabbit Ltd rents office space from Fox Ltd in its headquarters facility.The renewable lease agreement, which will expire in 10 years' time.
Required
With reference to AASB10 and the relevant facts from the case study above, prepare a report to explain why Fox Ltd does or does not control Rabbit Ltd. Support your argument with appropriate definitions and references using the relevant Australian Accounting Standards.
PART B
Parent Ltd acquired 100% interest in Subsidiary Ltd on 1 January 2019. At that date, Subsidiary Ltd's net assets were represented by its shareholders' equity consisting of share capital of $100,000 and retained earnings of $70,000.
On the date of the acquisition, Parent Ltd and Subsidiary Ltd agreed the following;
(a) Subsidiary's Land had a fair value of $180,000 (carrying amount $100,000).
(b) Subsidiary had a patent with a fair value of $100,000 (was not previously recognised in Subsidiary's book). The patent is to amortise over 10 years on straight line basis.
(c) Subsidiary had inventories that were $30,000 lower than fair value. These inventories were sold by 30 June 2019.
The following intra-company transactions occurred during the year ending 30 June 2020.
a) On 1 May 2020, Subsidiary Ltd purchased goods for $150,000 from Parent Ltd on credit at cost plus 50% mark up. As at 30 June 2020, 40% of the inventory was still on hand and 25% of the amount owing for the sales remain unpaid.
b) On 1 June 2019, Parent Ltd sold inventory to Subsidiary Ltd for $85,000, recording a before-tax profit of $30,000. By 30 June 2019, Subsidiary Ltd has sold one-third of these to other entities making profits of $54,000 and the remaining inventorywas sold by 30 June 2020 for $132,000 to external parties.
c) On 1 December 2019, Parent Ltd sold an item of machinery for $104,000 to Subsidiary Ltd. At the date of sale, Parent Ltd had recorded the asset at a carrying amount of $80,000 (accumulated depreciation: $20,000. depreciation rate: 10% p.a. straight-line method).
d) Parent Ltd provided a warehouse to Subsidiary Ltd since 1 March 2019. The rent is $12,000 per annum and payable in arrears 6 monthly on 31 August and 28 February each year. Both companies record accruals.
Required
Prepare the following
a) Acquisition analysis at 1 January 2019
b) A consolidation worksheet for the year ending 30 June 2020 (use the template provided, add more lines if necessary: show all workings. You do not need to submit the journal entries as these entries will not be marked)
c) A consolidated Statement of Changes in Equity for the year ending 30 June 2020
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(b) Consolidation Worksheet
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Parent Ltd
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Subsidiary Ltd
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Adjustments
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Consolidated
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Dr
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Cr
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Sales
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1,050,000
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509,100
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Less Cost of Sales
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510,000
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281,000
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|
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Gross Profit
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540,000
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228,100
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|
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Add Dividend Income
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35,000
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0
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Add Rental Income
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12,000
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0
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Add Gain on Sale of Machine (Proceeds less Carrying amount)
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24,000
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0
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Less Occupancy Expenses including Rent
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37,000
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29,500
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Less Admin Expenses
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46,000
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15,000
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Less Depreciation & Amortisation
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62,000
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40,000
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Less Other Expenses
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40,000
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10,000
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Profit before tax
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426,000
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133,600
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Less Income Tax Expenses
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80,000
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24,600
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Profit after tax
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346,000
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109,000
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Retained earnings (1 July 2019)
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124,000
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90,000
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Less Dividends (paid and declared)
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(70,000)
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(35,000)
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Retained earnings (30 June 2020)
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400,000
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164,000
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General reserve
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36,000
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0
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Share Capital
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400,000
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100,000
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BCVR
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0
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0
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Deferred tax liabilities
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0
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0
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Trade & Other Payables
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80,000
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75,000
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|
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Dividend payable
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70,000
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20,000
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|
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Bank Overdraft
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90,000
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0
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Total Shareholders' equity and Liabilities
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1,076,000
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359,000
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|
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Land
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142,000
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100,000
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|
|
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Machinery, at cost
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370,000
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135,000
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Less Accumulated Depreciation
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(120,000)
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(55,000)
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|
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Patent at cost
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40,000
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0
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Less Accumulated Amortisation
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0
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0
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Investment in Subsidiary Ltd
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340,000
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0
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Goodwill
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0
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15,000
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Dividend receivable
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20,000
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0
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Deferred tax assets
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0
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0
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Inventories
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169,000
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60,000
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|
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Trade & Other Receivables
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95,000
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79,000
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|
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Cash and cash equivalent
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20,000
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25,000
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|
|
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Total Assets
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1,076,000
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359,000
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|
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Attachment:- Company Accounting.rar